Lies, Damned Lies and Statistics: Q3 GDP growth
This was the title of the first report I wrote for the Marblehead Reporter back in 2008.*
The phrase came to my mind when I saw these two headlines on Thursday:
“US GDP surged a record 33% in the 3rd quarter as the economy reopened, roughly double the next-biggest jump.” (Business Insider)
“U.S. GDP booms at 33.1% rate in Q3, better than expected” (CNBC)
Wow! What amazing growth! As CNBC says – and they are financial experts – the economy is booming!
But wait a minute….. 22.6 million people were claiming unemployment benefits when the Government last reported numbers on October 10, compared with just 1.4 million a year ago. How does that square with a booming economy?
Well now, let’s look into this “booming ” Q3:
The first thing to know is that the quoted figures are an annualised rate, not the actual rate of growth.
Next, GDP decreased at a 31.4% rate in Q2, but boomed 33.1% in Q3. But that does not get us back to Q1 levels:
That’s because the 31.4% decline is that percentage of 1,000 (in the example) while the 33.1% increase is from 686.
Business Insider went on to say: “And while the 33% GDP increase might seem to offset the second-quarter slump, it doesn’t place overall output back at its pre-pandemic highs. Third-quarter growth would have needed to reach roughly 46% to balance out the record downturn.”
“If the provisional figure is correct, the US economy has now recovered to around 10% below its level in the first quarter, before the onset of the pandemic in the US,” said Cailin Birch, the global economist at the Economist Intelligence Unit.
Obviously, the sharp recovery from the COVID-19 induced slump in Q2 is welcome news; it just does not in any way reflect a “booming” economy. There is still a long way to go.
*”Lies, damned lies, and statistics” is part of a phrase attributed to Benjamin Disraeli and popularized in the United States by Mark Twain: “There are three kinds of lies: lies, damned lies, and statistics.” The semi-ironic statement refers to the persuasive power of numbers, and succinctly describes how even accurate statistics can be used to bolster inaccurate arguments.
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